Correlation Between Franklin Income and Vanguard Primecap

Can any of the company-specific risk be diversified away by investing in both Franklin Income and Vanguard Primecap at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Franklin Income and Vanguard Primecap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franklin Income Fund and Vanguard Primecap Fund, you can compare the effects of market volatilities on Franklin Income and Vanguard Primecap and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Franklin Income with a short position of Vanguard Primecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Income and Vanguard Primecap.

Diversification Opportunities for Franklin Income and Vanguard Primecap

0.84

Correlation Coefficient

Franklin Income  Vanguard Primecap

Very poor diversification

The 3 months correlation between Franklin and VANGUARD is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Income Fund and Vanguard Primecap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Primecap and Franklin Income is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Franklin Income Fund are associated (or correlated) with Vanguard Primecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Primecap has no effect on the direction of Franklin Income i.e., Franklin Income and Vanguard Primecap go up and down completely randomly.

Pair Corralation between Franklin Income and Vanguard Primecap

Assuming the 90 days horizon Franklin Income is expected to generate 1.09 times less return on investment than Vanguard Primecap. But when comparing it to its historical volatility, Franklin Income Fund is 2.45 times less risky than Vanguard Primecap. It trades about 0.09 of its potential returns per unit of risk. Vanguard Primecap Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  14,336  in Vanguard Primecap Fund on October 4, 2024 and sell it today you would earn a total of  1,725  from holding Vanguard Primecap Fund or generate 12.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Franklin Income Fund  vs.  Vanguard Primecap Fund

Franklin Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Franklin Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Primecap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Primecap Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Franklin Income and Vanguard Primecap

The main advantage of trading using opposite Franklin Income and Vanguard Primecap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Income position performs unexpectedly, Vanguard Primecap can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard Primecap will offset losses from the drop in Vanguard Primecap's long position.

The idea behind Franklin Income Fund and Vanguard Primecap Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.